Big Brazil oil sale attracts 11 firms as Exxon, BP, BG pass

By Rodrigo Viga Gaier

Published September 19, 2013

Reuters

RIO DE JANEIRO – Only 11 oil companies paid the fee required to qualify for a planned October 21 auction of Brazil's biggest ever oil discovery, the country's petroleum regulator said on Thursday, noting that almost four times that many companies had been expected to participate.

Deep-pocketed international companies such as Exxon Mobil Corp , BP Plc and BG Group Plc plan to stay away from bidding for the giant Libra offshore oil prospect near Rio de Janeiro, Magda Chambriard, head of Brazil's oil regulator ANP, told reporters on Thursday.

Chambriard said she had expected more than 40 companies to bid for Libra, the first Brazilian area to be sold under a 2010 "production-sharing" law that requires investors in the area to give the Brazilian government a share of output to sell on its own account. BP and BG have large oilfield investments close to Libra, and Exxon failed to find oil nearby several years ago.

"This is a surprise, the area is extremely promising and there are not any opportunities in the world like this," said Paulo Roberto da Costa, an oil industry consultant and former head of refining at Petroleo Brasileiro SA, or Petrobras, Brazil's state-run oil company. "I expected a much larger number because of its potential."

Brazil's government, which expects to get $400 billion from Libra over 30 years, sees the new rules, which apply to all new development in the Campos and Santos basins near Rio de Janeiro, as a way to gain more control over natural resources and finance improvements in health care and education.

Oil rights in the rest of Brazil will continue to be sold on a concession basis, where oil companies own all the output, but pay a royalty of at least 10 percent on everything produced.

Under the production-sharing system Petrobras will have to take a minimum 30 percent stake in any winning group and direct the development of the area as the group's operator.

To secure a spot at the auction, companies were required to pay 2.05 million reais ($931,818) by the end of Wednesday. The payment also gives them bidding information. Companies that make offers will also have to provide additional financial guarantees before the auction. At previous auctions some companies that have paid the initial fee have later declined to make bids.

To buy the Libra rights, the winning company or group will have to pay at least 15 billion reais ($7.8 billion) up front.

Libra, with an estimated 8 billion to 12 billion barrels of recoverable oil, enough for three to five months of world consumption, is one of the largest oil prospects ever sold at auction. Libra is expected to produce 1 million barrels a day, half of Brazil's current output, within 10 years.

Earlier on Thursday, Chambriard said that at least 12 companies had paid the initial entry fee. The ANP press office said the actual number was 11.

The ANP is expected to publish a complete list of preliminary participants later on Thursday, the regulator's press office said on Wednesday.

($1 = 2.20 Brazilian reais)

(Additional reporting by Roberto Samora; Writing by Jeb Blount; Editing by David Gregorio)